Insuring the Middle Market: Success Requires a New Approach to Underwriting
"…if the life insurance industry can eventually crack the secret of reaching the mid-market in an efficient and cost-effective manner, a noticeable increase in new business could be seen."
Mike Taht and Dave Bruggeman
Munich American Re
Considering that the potential for new sales in the so-called "middle market" is said to be upwards of $10 trillion, it is no surprise that this is one of the hottest topics in the life insurance industry.
After chronically under-serving this market for decades, carriers are now focusing on ways to cost-effectively write larger volumes of coverage on persons earning between, say, $50,000 to $150,000 annually.
As Taht and Bruggeman point out in their excellent article, one strategy to attract buyers is to offer morbidity product riders. Critical illness and long-term care should have particular appeal here because stand-alone LTC and CI policies have barely scratched the surface of their potential in this country.
But no matter how many features are offered, the insurer's approach to risk assessment will be the fulcrum upon which its prospects for success are balanced.
Full underwriting is absolutely incompatible with realizing insurer's ambitious in this unfolding market because it is bogged down by paramedical examinations, bodily fluid collections, and the time spent tracking down physicians' records.
It is imperative that carriers reduce new business acquisition costs, realize rapid application-to-issue cycle times and make the process as customer friendly as circumstances permit.
These are just a few of the steps insurers can take to help realize their goals:
- Use what I call "super-simplified" underwriting. This differs from the traditional simplified approach primarily because it does not limit risk assessment to a handful of Yes/No knockout questions.
- Limit the number of risk-related application questions so that only the essential issues are addressed.
- Rely upon rapid-access resources to evaluate risk. These include MIB, pharmacy records and motor vehicle reports.
- Take risk histories with telephone interviews and set up a protocol that allows "hot transfer" of applicants directly to interviewers.
- Deploy a straight through processing system with an underwriting engine capable of determining insurability of a large portion of applications without file review by underwriters.
- Restrict ordering of medical records to a handful of cases where they greatly enhance the prospects for placing standard or minimally rated business.
- Develop preferred case criteria to make your product attractive to the best risk, without compromising mortality results.
I also discourage insurers from taking risk histories over the Internet because this approach increases the likelihood of intentional nondisclosure (antiselection). Antiselection is an insidious obstacle to writing profitable business.
Telephone interviews, with strategic "drilldown" questioning of potentially insurable impairments, have quite literally exerted a revolutionary impact on underwriting in the United States as well as many larger insurance markets worldwide.
They have reduced the need for medical records more than any other underwriting resource and their impact is enhanced dramatically when used in conjunction with pharmacy records.
Sizable amounts of insurance can be offered on a super-simplified basis, especially at ages 18 to 40 where most earlier duration mortality is clustered in nonmedical causes of death. Lesser but still significant sums can also be considered for older ages; indeed, some companies use this approach at ages 65 and older.
Keeping an open mind is essential.
This means not allowing yourself to be dissuaded by naysayers who will tell you that these strategies are flawed and certain to undercut profitability.
Super-simplified underwriting solves all three obstacles to effective risk assessment in the middle market:
- It is significantly less expensive
- It accommodates rapid, accurate decision-making
- It has none of the elements that can make the underwriting process unpleasant for customers
We have helped a number of carriers streamline the underwriting process so that all of these goals are met…without the need to charge such high premium rates as to make their products uncompetitive!
If you have any questions about this subject, give me a call. I can be reached at 414.423.0967 in Milwaukee and also by e-mail at email@example.com